P9-1B At December 31, 2009, Dill Imports reported the following information on its balance sheet.
Accounts receivable $250,000
Less: Allowance for doubtful accounts 15,000 During 2010, the company had the following transactions related to receivables.
1. Sales on account $2,400,000
2. Sales returns and allowances 45,000
3. Collections of accounts receivable 2,250,000
4. Write-offs of accounts receivable deemed uncollectible 12,000 5. Recovery of bad debts previously written off as uncollectible 3,000 Prepare journal entries related
to bad debts expense.
(SO 2, 3, 9)
Instructions
(a) Prepare the journal entries to record each of these five transactions. Assume that no cash discounts were taken on the collections of accounts receivable.
(b) Enter the January 1, 2010, balances in Accounts Receivable and Allowance for Doubtful Accounts. Post the entries to the two accounts (use T accounts), and determine the balances.
(c) Prepare the journal entry to record bad debts expense for 2010, assuming that an aging of accounts receivable indicates that estimated bad debts are $22,000.
(d) Compute the accounts receivable turnover ratio for the year 2010.
P9-2B Information related to Bee Company for 2010 is summarized below.
Total credit sales $1,100,000
Accounts receivable at December 31 369,000
Bad debts written off 22,150
Instructions
(a) What amount of bad debts expense will Bee Company report if it uses the direct write-off method of accounting for bad debts?
(b) Assume that Bee Company decides to estimate its bad debts expense to be 2% of credit sales. What amount of bad debts expense will Bee record if Allowance for Doubtful Accounts has a credit balance of $3,000?
(c) Assume that Bee Company decides to estimate its bad debts expense based on 6% of accounts receivable. What amount of bad debts expense will Bee Company record if Allowance for Doubtful Accounts has a credit balance of $4,000?
(d) Assume the same facts as in (c), except that there is a $2,000 debit balance in Allowance for Doubtful Accounts. What amount of bad debts expense will Bee record?
(e) What is the weakness of the direct write-off method of reporting bad debts expense?
P9-3B Presented below is an aging schedule for Jafar Company.
Problems: Set B
429
Worksheet.xls
File Edit View Insert Format Tools Data Window Help
A B C D E F G
Number of Days Past Due 1
2 3 4 5 6 7 8 9 10 11 12
Customer Total
Not
Yet Due 1–30 31– 60 61–90 Over 90
Akers Baietto Comer DeJong Others
Total Estimated
Bad Debts $ 4,110
Estimated Percentage
Uncollectible 2%
$ 45,000 138,000 22,500
$ 54,570 $ 30,000 75,000 45,000 57,000 189,000
$396,000
$57,000 9,000
$66,000
$45,000
$45,000
$16,500
19,500 22,500
$36,000
$ 13,500 7,500
$43,500
$205,500
$ 2,610 6%
$ 3,600 10%
$ 11,250 25%
$33,000 50%
Journalize entries to record transactions related to bad debts.
(SO 2, 3)
At December 31, 2010, the unadjusted balance in Allowance for Doubtful Accounts is a credit of
$16,000.
Instructions
(a) Journalize and post the adjusting entry for bad debts at December 31, 2010.
(b) Journalize and post to the allowance account the following events and transactions in the year 2011.
(1) March 1, a $1,900 customer balance originating in 2010 is judged uncollectible.
(2) May 1, a check for $1,900 is received from the customer whose account was written off as uncollectible on March 1.
(c) Journalize the adjusting entry for bad debts on December 31, 2011. Assume that the unad- justed balance in Allowance for Doubtful Accounts is a debit of $2,000, and the aging sched- ule indicates that total estimated bad debts will be $42,300.
(b) Accounts receivable
$343,000 ADA $6,000 (c) Bad debts expense
$16,000
(a) Bad debts expense
$38,570
(c) Bad debts expense
$44,300
Compute bad debts amounts.
(SO 3)
P9-4B The following represents selected information taken from a company’s aging schedule to estimate uncollectible accounts receivable at year end.
Instructions
(a) Calculate the total estimated bad debts based on the above information.
(b) Prepare the year-end adjusting journal entry to record the bad debts using the allowance method and the aged uncollectible accounts receivable determined in (a). Assume the cur- rent balance in the Allowance for Doubtful Accounts account is a $3,000 credit.
(c) Of the above accounts, $1,600 is determined to be specifically uncollectible. Prepare the jour- nal entry to write off the uncollectible accounts.
(d) The company subsequently collects $700 on a specific account that had previously been de- termined to be uncollectible in (c). Prepare the journal entry(ies) necessary to restore the ac- count and record the cash collection.
(e) Explain how establishing an allowance account satisfies the matching principle.
P9-5B At December 31, 2010, the trial balance of Liquid Snake Company contained the fol- lowing amounts before adjustment.
Debits Credits
Accounts Receivable $250,000
Allowance for Doubtful Accounts $ 1,100
Sales 600,000
Instructions
(a) Prepare the adjusting entry at December 31, 2010, to record bad debts expense under each of the following independent assumptions.
(1) An aging schedule indicates that $12,500 of accounts receivable will be uncollectible.
(2) The company estimates that 2% of sales will be uncollectible.
(b) Repeat part (a) assuming that instead of a credit balance, there is a $1,100 debit balance in Allowance for Doubtful Accounts.
(c) During the next month, January 2011, a $3,200 account receivable is written off as uncol- lectible. Prepare the journal entry to record the write-off.
(d) Repeat part (c) assuming that Liquid Snake Company uses the direct write-off method instead of the allowance method in accounting for uncollectible accounts receivable.
(e) What are the advantages of using the allowance method in accounting for uncol- lectible accounts as compared to the direct write-off method?
P9-6B Marty Co. closes its books monthly. On June 30, selected ledger account balances are:
Notes Receivable $57,000 Interest Receivable 420 Notes Receivable include the following.
Date Maker Face Term Interest
May 16 Rice Inc. $12,000 60 days 10%
May 25 Smelter Co. 30,000 60 days 9%
June 30 Kupp Corp. 15,000 6 months 12%
Worksheet.xls
File Edit View Insert Format Tools Data Window Help
A B C D E F G
Total
Number of Days Outstanding
0–30 31– 60 91–120 Over 120
Accounts receivable
% uncollectible Estimated bad debts
$375,000 $220,000 $90,000 1
2 3 4 5 6 7
$10,000 $15,000 10%
8%
61–90
$40,000 5%
4%
1%
Journalize transactions related to bad debts.
(SO 2, 3)
(a) Tot. est.
bad debts $10,100
Journalize entries to record transactions related to bad debts.
(SO 3)
(a) (2) $12,000
Prepare entries for various notes receivable transactions.
(SO 2, 4, 5, 8, 9)